Home Forums Questions on Intra-day volatility arbitrage strategy (VolArb)?

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  • #1925
    hessinemaaoui
    Keymaster

    http://www.numericalmethod.com/wiki/numericalmethod/wiki/ModelVolArb#

    May I konw what do you mean by “buying the bigger volatility and selling the smaller volatility”?

    My interpretation is to buy an option and delta hedge it so that it’s market neutral ( total delta is 0).

    However in the “ModelVolArb Summary ” , it states that “This strategy trades on a synthetic mean-reverting pair (hedge ratio ¦Â) by selecting an appropriate frequence difference (H). For example, a synthetic pair made of AUDNZD and GBPJPY.”

    There is no option on the spread of  “AUDNZD -GBPJPY” .

    So what actually do you trade on ? 

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